Friday, May 14, 2010

IRS Cyber Assistant Program Delayed

The IRS has been developing a web-based software program called the Cyber Assistant. Honestly, it sounds cooler than it really is - that is, unless you are a 501(c)(3) geek like we are. In any case, this program is designed to help 501(c)(3) applicants file for exemption (Form 1023)as well as improve the quality and consistency of exemption applications.The program was scheduled to be rolled out this year, but the IRS recently announced that software testing has revealed some problems requiring correction prior to public launch, and so the release of the Cyber Assistant will be delayed beyond this calendar year. The IRS will continue to accept exemption applications using the existing processes and the current user fees will remain in effect for the 2010 calendar year.When the Cyber Assistant is released, the user fee will be reduced to $200 for applications filed using the program.

Exempt Organizations Need to File Form 990/990-EZ/990-N/990-PF by May 17

Most tax-exempt organizations must file an annual return or notice with the IRS. The Pension Protection Act of 2006 provided that if an organization does not file as required for three consecutive years, it automatically loses its tax-exempt status, effective the due date of the filing. The 2009 filing is the first year that the provision will come into effect. The due date for exempt organization returns is May 17th this year.

The IRS has posted new FAQs and an audio interview discussing the automatic revocation of tax-exempt status for failure to file. Also, the Urban Institute's National Center for Charitable Statistics has a searchable database available online to see if an organization is at risk of losing its tax-exempt status. This is a useful tool for checking to see if your organization needs to file a return.

IRS Report on College and Universities Released

The Internal Revenue Service has released an interim report summarizing responses to compliance questionnaires sent to 400 public and private colleges and universities in October 2008. The interim report contains preliminary information on the respondents’ organizational structures, demographics, exempt and unrelated business activities,endowments, executive compensation and governance practices. The survey divided the organizations into three categories: Small (under 5,000 students), Medium (5,000 to 14,999 students) and Large (15,000 or more students). The focus of the report is on UBIT, investments, and executive compensation.

Together with the recently released CBO report on arbitrage by exempt colleges and universities, there is good reason to think that the regulatory winds are blowing for the nonprofit higher education sector. There will likely be new legislation at some point affecting colleges and universities, if not the whole exempt sector, as a result of these reports. A similar IRS study of nonprofit hospitals was begun in 2006 and was directed at community benefit and compensation issues, and there was also a CBO report on tax arbitrage by nonprofit hospitals. The recently enacted of IRC 501(r) as part of the health insurance reform legislation requires that exempt hospitals conduct a community benefit assessment every three years and make fee assistance programs more accessible, among other things.